Industry Consolidation -- A Quiet Buyer's Market
James Cohen, executive vice president of mergers and acquisitions for Consolidated Graphics.
Bob Cronin, managing partner of The Open Approach.
Roy Grossman, founder of MSP.
Another question buyers and sellers need to ask themselves: Should we regard the current conditions completely as a short-term byproduct of the economy, or has the game changed drastically for printing deals? Bob Cronin, managing partner of The Open Approach, which has directed multiple transactions, believes negotiators on both sides of the aisle are having difficulty finding common ground.
“Buyers expect sellers to realize that the value of their property has gone down, and that the multiples they will pay have gone down,” Cronin says. “Sellers may remember an industry deal from a year ago that was seven to eight times EBITDA; that’s just not happening these days.
“Both buyers and sellers are facing the shock value of the market itself. The buyers think they still have this great property that should have value. But, when you ask the question, ‘How do you perform in an economy that no one understands?’ no one has a good answer for that. It doesn’t bring comfort to the buyer, and without comfort on the buyer’s side, it hurts the multiple.”
Companies offering those long-preached value-added services are doing well, Cronin notes. Which printers operate in the most attractive vertical spaces? Which ones are in untenable positions? Financial services is under a terrible strain; print volume is down because there are fewer customer solicitations going through the mail. Advertising space for publications is off drastically, he notes, reflecting declines for traditionally stout bases such as automotive and financial services. Packaging labels for clients within the food industry are hot, he adds, along with point-of-sale materials.
Cronin expects to see more deals, where essentially the printer is only adding volume—asset deals where the only assets are salespeople and client lists. He’s not ruling out transactions being made by the majors, even though many of the publicly held printers are trading at around $10 to $15 a share.